Making Innovation Flourish

Supporting the new class of 'necessity entrepreneurs'

This week is the Global Entrepreneurship Week. It is often said that there are two types of entrepreneurs, those driven by necessity and those driven by opportunity. The current economic climate will create a lot of 'necessity entrepreneurs' who will be looking for opportunites.  This is the time when both necessities and opportunities are immense and governments, in their ‘Neo-Keynesian’ thinking, can play a very important role in stimulating demand by helping the new class of ‘necessity entrepreneurs’ become high-impact ‘opportunity entrepreneurs’.  This will require governments injecting serious amounts of money into 'seed capital' and 'micro-finance' funds to keep unemployment under control, prevent brain drain and brain-waste, and create new supply-chains. or should I say new demand-chains?  

The failure of market failure: Towards a 21st century Keynesianism

This morning saw the launch of a new NESTA provocation by Will Hutton and Philippe Schneider on The Failure of Market Failure: Towards a 21st century Keynesianism.  The provocation updates the age-old debate about the efficacy of state intervention versus laissez faire, and in so doing is fiercely critical of economic frameworks used to inform policymaking in the UK. The primacy of the concept of market failure in policymaking - the view that state intervention can only be justified when it can be demonstrated that free markets cannot do better - comes in for particular criticism.
 
The provocation updates the debate in two ways: first, by reference to developments in institutional economics, psychology and behavioural economics which the authors see as jarring with the behavioural and motivational assumptions traditionally made by policymakers; and second, by interpreting the current financial crisis as prima facie evidence that markets need government ('markets fail more often than they do not'). If the UK is to successfully innovate, the authors argue, policymakers must recognise the importance of the government and the private sector working together, not falsely pitch them at opposite sides.
 
At this morning's policy breakfast to launch the Provocation, Will Hutton argued that a number of crucial policy interventions in the UK have been sacrificed at the alter of market failures. For those working on policies to support future innovation and creativity, where well-defined market failures are by their nature difficult to anticipate and evidence, this is a sobering thought. Will finished his comments with a call to the British academic economics profession among others to respond to the thesis set out in his Provocation. Going ahead NESTA looks forward to playing its role in facilitating the debate.